Nearly eight months after American and Israeli strikes on Iran began, the war has not settled into something less dangerous. Major combat has paused, but the sea lanes are not calm. This week the Revolutionary Guard Navy claimed it had set four vessels ablaze in the northern Gulf and that three more had struck mines west of the Strait of Hormuz. Those claims remain unverified. However, the accompanying warning, that American bases could face a wider response, deserves to be taken seriously.
Diplomacy offers little comfort. A ceasefire agreed in June unravelled within weeks, and the arrangement formally lapsed in August. Tehran says Hormuz would reopen if Washington ends its naval blockade, eases oil sanctions and accepts a ceasefire on all fronts, while mediators in Pakistan and Qatar keep indirect talks alive. Yet President Trump has said he will not strike Iran before the American midterms, and reports suggest Washington and Israel are already drafting plans for afterwards. A pause dictated by an electoral calendar is an intermission, not peace.
Geopolitically, the conflict has scrambled familiar alignments. Chinese-flagged ships continue to use Iran’s paid corridor, which sits awkwardly with Washington’s blockade, while Gulf monarchies, Saudi Arabia among them, find themselves absorbing attacks on their own soil. Meanwhile, Trump has even threatened to pull back from Europe over a dispute tied to Iran, a sign of how far the war strains Atlantic ties. Middle powers such as ours therefore cannot assume that the old rules of the maritime order will protect us.
The consequences for energy security are plain. Brent has swung between roughly $97 and $112 this month and stood near $108 on Wednesday. Before the war, about a fifth of the world’s oil passed through Hormuz, and HSBC now describes the waterway as structurally impaired. Exports have recovered in part, yet that recovery looks fragile. Moreover, Iran reportedly sells passage for up to $2 million a tanker while America blockades its ports. A chokepoint with two rival gatekeepers is a precedent no importing nation should welcome.
Trade is suffering in quieter ways too. Insurance premiums, freight rates and rerouting costs have all risen, and the American ten-year Treasury yield sits above 5 per cent, against under 4 before the war. That matters to Sri Lanka, because expensive global money makes repayment harder for countries that defaulted only four years ago. In other words, the war taxes us twice, through the fuel we buy and the capital we borrow.
At home, the damage is already visible. We import every drop of our oil, and pump prices have risen four times since February, by a cumulative 38 to 46 per cent according to the IMF. Petrol now costs Rs 414 a litre. Inflation reached 8 per cent in September, above the Central Bank’s target band, while food prices climb as dearer diesel pushes up the cost of moving rice and vegetables. The IMF approved a further $695 million last week, yet it projects growth slowing to just 3 per cent and insists on cost-reflective fuel and electricity prices. Fiscal discipline is necessary; nevertheless, the poor feel it first.
Two lifelines remain, but both are exposed. Remittances have held up impressively, reaching $3.06 billion in the first four months, 24.5 per cent higher than a year earlier. However, the bulk of that money comes from the Gulf, so any serious spillover there would hit households and reserves together. Tea tells a similar story. Exports fell 4.6 per cent in the first five months, the tea-for-oil barter with Iran has stalled, and exporters complain of vessels skipping Colombo and mounting freight costs.
What should we do? First, fuel stocks must be treated as a security matter, which means finishing the extra storage the President promised and seeking supply deals beyond a single region. Second, we should widen the destinations for migrant workers and tea, as economists have urged for years. Third, relief ought to be aimed at the poorest households rather than spread thinly through blanket subsidies that the IMF will not tolerate anyway. Finally, our diplomacy should remain what it has long been: friendly to all, aligned with none, and firmly in favour of freedom of navigation in the Indian Ocean on which our ports depend.
We did not start this war and cannot end it. Still, an island that learnt hard lessons in 2022 can at least refuse to be surprised twice.